Get Real! How to Improve Tax Data Management (Part I)

  • December 13, 2013

In previous posts, I discussed common tax data management problems (the root cause of tax process inefficient and ineffectiveness) and related improvement goals. Now, I want to share how some leading tax departments are really addressing these problems and achieving their improvement objectives.

These approaches typically consist of two parts:

  1. Recognizing the nature of the challenge; and
  2. Taking several immediate steps to make progress on improving tax processes (which may include introducing greater automation to the tax data management lifecycle).

This post will cover the recognition part of the approach.

The reality is that there is no silver bullet fix. However, because tax data management hassles can consume upwards of 50 percent of the tax department’s time, leading practitioners recognize that increasing the efficiency of tax data management activities represents the most logical way to free up department time and resources to address a growing list of challenges, including new regulatory requirements. At a high level, there are three levers for enabling tax departments – or any corporate function, for that matter; to get more work done, you must consider: people, process and technology.

Reality #1: Staffing Increases are Unlikely
Tax historically has focused on people first, and for good reason: a seasoned tax professional’s tax positioning and planning knowledge is incredibly valuable when properly applied. Unfortunately, much of this expertise remains dormant because highly trained tax professionals spend so much of their time tracking down the information, then double or triple-checking it before they can complete an analysis. Obtaining the budget to increase headcount is unlikely given the realities of the “new normal” economy. In fact, the tax professionals who attended Vertex’s annual Exchange conference in late October identified (*more on this in a future post*) “having to do more with less” as their department’s second biggest challenge, right behind the “ability to obtain timely and accurate data.”

Reality #2: Workflow Solutions can Mask Foundational Issues
Given the low odds of staffing increases, it makes sense to consider process and technology as efficiency-improvement levers. With respect to process, tax services vendors and even some software vendors (including Vertex) help companies benchmark existing tax processes against industry norms, making specific recommendations for improvements, or at a minimum, develop a business case for pursuing a process improvement initiative. In addition, tax departments can now leverage new systems capable of “programming” workflow. These workflow tools can organize, notify, and track the progress of key processes and tasks over time; help tax departments enforce best practices; and facilitate continuous process improvement. The concept is sound; what gets measured gets improved. However, major foundational barriers to these process improvements inevitably exist. If these barriers, which typically consist of underlying process problems, aren’t addressed first, using a workflow tool alone is equivalent to wallpapering over a window. The resulting fix may look solid, but because no structural change has occurred, the fix can prove fragile and ineffective: the fix allows you to measure how slowly you receive bad data, but does not help you do anything about it.

Reality #3: Technology must be Flexible
Technology is the final lever for effecting significant change. Most tax departments recognize that a one-size-fits-all technology approach is unlikely to yield the desired improvements to tax data management and to overall tax process effectiveness and efficiency. Instead, these tax functions seek out an extremely flexible, dynamic tax data management solution that can be adapted to meet their unique needs on comprehensive basis: a single solution that supports data acquisition, validation, storage, and preparation for use, including automated workflow, business intelligence, reporting and analytics, and document management. Consider it the one-two punch

This concludes the reality programming part of my two-part series. In my next post, I’ll share the specific steps leading tax functions are using, right now, to streamline the entire tax process lifecycle.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.

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